The bulls who spent the past six months hailing the re-emergence of Japan had a bad time last week. The country that once routinely sent panic through the west with its technical wizardry was forced to close its stock exchange early on Wednesday because it could not cope with a flood of sell orders, brought about by scandal-hit internet company Livedoor.

The country that gave us the VHS, the Walkman and the Bullet Train was brought into disrepute because it bought software on the cheap.

It is the third time in three months the stock exchange has been a source of national embarrassment. In November, trading had to be suspended for more than four hours after a computer glitch. The following month, the Mizuho Securities brokerage lost $333m when a trader hit the wrong button on his keyboard, which led to the resignation of the exchange’s president after it emerged that a computer fault meant the mistyped trade could not be pulled in time.

To have one computer glitch may be regarded as a misfortune and to have two looks like carelessness; to have three looks like a systemic nightmare. But while the problems are primarily a result of management failure, they are symptomatic of the country’s wider troubles. In spite of a 12-month stock market surge that sent the Nikkei up by more than 40%, Japan remains stuck with a sub-standard growth rate and is facing more questions than it has answers about the future.

The Japanese recovery was one of the supposed themes of last year but the evidence to back it up is flimsy. Japan’s GDP is likely to have expanded by just over 1% last year – it hasn’t managed even a meagre 3% since 1997. Meanwhile, China is reporting estimated growth of 9.8% in 2005, much faster than expected.

If the evidence of past improvement doesn’t stack up, the future looks cloudy, too. Much of the optimism surrounding Japan was based on its apparent conversion to the new economy, an attitude that will have been dented by the Livedoor affair. Critics worry that the foundations on which many of its companies are built are being overlooked. And the slow pace of the reform of the postal system shows that many in the bureaucracy have not embraced liberalisation.

But most importantly, Japan has yet to work through its relationship with China. Say what you will about the accuracy of those growth figures, about corruption, about western investors being ripped off and about the pervasive influence of the Communist Party, Japan has not grasped its neighbour’s success.

Japanese investors, most notably financial institutions, have been left behind by their western counterparts in exploiting the China market as a place to sell their products and to manufacture them more cheaply.

China’s thirst for resources has Japan worried. The two nations are the world’s second- and third-largest oil consumers and the race is on to secure access to resources. In 2004, the two clashed over the route of an oil pipeline from large oilfields in eastern Siberia, with Japan bidding for it to go to the eastern port of Nakhodna for shipment to Japan and China urging it to end in the Chinese city of Daqing.

Japan hopes that such long-term problems can be overcome in the interests of better trade links, just as its stock exchange hopes that increasing its capacity to five million transactions this week will restore investors’ faith in the market.

But the problems go deeper than a computer glitch: the episode has put a spotlight on the precarious state of Japan’s economic health – just as Tokyo had begun to hope that better times lay ahead.